Orange's boss Richard promises investors more of the same

PARIS/LONDON (Reuters) – Orange’s boss Stephane Richard told investors on Thursday he will stick with plans to invest heavily in upgrading networks rather than content as he bids for a third term to lead France’s biggest telecoms operator.

Richard is credited with having improved Orange’s results in the fiercely competitive French market. But he still needs backing from the French state, which has a 23 percent stake, to secure another four-year stint as CEO from spring 2018.

His campaign to keep the top job coincides with testing times for France’s telecoms and media industries, which face contrasting demands from customers who want both fast Internet services as well as appealing media content.

The CEO, speaking at an investor day in London, said the company would maintain Orange’s focus on upgrading broadband and mobile networks and offering bundled fixed and mobile offers in its three key markets – France, Spain, Poland.

“We will not participate to the expected inflation of sports rights”, Richard said, referring to high prices for football rights in France.

“Regarding investments in content, we could see some partnerships between operators,” he added.

Orange’s board will vote on his future on Feb. 20. There are no other declared candidates to succeed him among current board members, he said.

Altice has bet hundreds of million euros on football sports rights, including the Champions League, in the hope that it will attract customers.

PRESSURE ON MARGINS

The arrival of Iliad’s low-cost mobile services in France in 2012 put the industry’s margins under pressure. But Orange’s strategy has helped it to return to revenue growth in France, while its bundled offers in Spain have been a success.

This has convinced Richard to do more of the same.

Group investments will reach a peak in 2018 of 7.4 billion euros ($8.7 billion) and start declining the following year, Orange said.

The spending is key for rolling out high-speed broadband fiber technology and will allow Orange to increase revenue and margins in the long-term, Chief Financial Officer Ramona Fernandez said.

“This investment on fiber, this conviction that the fixed-mobile convergence is what makes the difference,” Fernandez said. “It’s not this pseudo telecoms-content convergence that makes the difference.”

Orange shares were up 2.81 percent at 1351 GMT. The shares have risen by 1.1 percent this year, valuing the company at 38 billion euros ($45 billion). The stock has outperformed the Stoxx 600 Europe telecoms index by three percentage points.

Orange also said it was targeting a growth in its core operating profit of 2 percent in 2017, followed by an “acceleration of the growth rate in 2018” and further increases in 2019 and 2020.

It said its annual dividend would amount to 65 euro cents for 2017-2020.

Under Richard’s leadership, Orange has expanded its telecoms activities overseas in Africa, Spain and decided to launch a new online banking service.

Richard said conditions were not yet right for any large pan-European M&A transaction that would involve Orange.

Last year, Orange tried to buy Bouygues’ telecoms unit in a complex deal that would have required selling some assets to rivals but the merger talks collapsed.

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